In the face of regulatory task forces, congressional hearings, subpoenas, and often conflicting views among regulators, its difficult to feel as an industry that crypto has a voice. That needs to change. Here’s our case for a self-regulatory cryptocurrency body in the U.S
Who knows the industry better than the very people who built it? This has been an argument for self-regulation in the cryptocurrency space for at least half a decade; the idea that traders who are literally invested in the space should be the ones who have a say in the industry’s regulation.
But what exactly does self-regulation mean? In the context of cryptocurrencies, self-regulation is the creation and evolution of guidelines, standards, and codes of conduct for crypto technology market participants.
Investopedia notes: “In a paper, the International Organization of Securities Commissions (IOSCO) has defined a set of elements that comprise self-regulation. These include transparency and accountability, contractual relationships, and coordination and information sharing.”
Global Momentum & Precedent
On February 13, Croatian traders created its Blockchain and Cryptocurrency Association (UBIK), a self-regulatory organization with the goal of creating a “crypto community, educating the public, and developing regulation in Croatia.” According to the UBIK blog, it officially became operational on February 17, 2018.
According to Reuters, 16 Japanese cryptocurrency exchanges “will fix plans as early as next week to create a self-regulating body in a bid to better safeguard investors after a $530 million digital money heist last month.” The plan would combine the Japan Cryptocurrency Business Association and Japan Blockchain Association to form a new self-regulatory body. A very reasonable and measured step for the home of Mt. Gox, the then-largest bitcoin intermediary and world’s leading bitcoin exchange which collaposed due to a combination of alleged theft, fraud, and mismanagement.
In South Korea, the Korean Blockchain Industry Association is made up of 33 of South Korea’s cryptocurrency exchanges and recently announced that it would conduct evaluations of 21 participants—such as Coinone, Bithumb, and Korbit—to develop a self-regulatory approach to the industry.
That’s not all…
Most recently, CryptoUK was formed to self-regulate the UK crypto industry. In a major first-of-its-kind development, its website states that its members include global cryptocurrency trading platforms and services Coinbase, eToro, CryptoCompare, CEX.IO, BlockEx, CoinShares, and CommerceBlock.
Group members must sign up for and adhere to a code of conduct, industry guidelines, best practices, and due diligence checks. Members must also ensure customer funds can be paid out in the event of an insolvency, ensure greater pricing transparency, and increased modes of cybersecurity.
Iqbal Gandham, the CryptoUK chairman and managing director of eToro, told media that this self-regulating body sims “to promote best practice and to work with government and regulators,” adding that the company can become “the blueprint for what a future regulatory framework will look like.”
Developments in the United States
A little over a week ago, Brian Quintenz, a Republican and top commissioner with the U.S. Commodity Futures Trading Commission (CFTC), endorsed a self-regulatory model for the U.S. market.
According to Forbes, Quintenz said, “operators in the cryptocurrency space could do well to consider adopting self-regulatory standards and ‘industry-wide’ best practices to policing the new technology-driven space amid the authorities and government mulling further possible regulatory action.”
And while the SEC appears ambivalent, the opinion is beginning to develop steam among high-ranking officials and other regulators.
One important point to note is that the goal of these self-regulatory groups is that they will not be anti-regulation. But instead, will be for pro-sensible regulation.
Heading Toward a Pro-Sensible Regulation
If as an industry we let this go and don’t adopt a self-regulatory model now, lawmakers will do it for us. And so far, that sort of regulation has come in the form of often confusing or competitive regulation, task forces who view traders negatively, and rules that clearly were developed by otherwise well-meaning bureaucrats who simply do not understand cryptocurrency.
Why is this important?
It’s an issue that even the U.S. Commodity Futures Trading Commission admits. On February 14, the CFTC’s Technology Advisory Committee met for the first time in two years. During the meeting, the board discussed developments within the blockchain and distributed ledger technology (DLT) landscape and virtual currencies, AI, and automated trading developments.
(Read the full day’s agenda of the CFTC’s Technology Advisory Committee here.)
Interestingly, the CFTC was quite open to receiving more insight from crypto experts – as Chairman J. Christopher Giancarlo noted in his opening statement, “…to learn everything we can about the emerging technology and its potential applications.”
Even Brian Quintenz shared CFTC Chairman Giancarlo’s view that cryptocurrency regulators should “respect the enthusiasm of investors” for new digital currencies and “meet that enthusiasm with thoughtful, balanced regulation.”
“The CFTC should not attempt to make value judgments about which new products are worthwhile and which are not – the markets, investors, and consumers need to decide that for themselves. However, the CFTC should aggressively target fraudulent and manipulative behavior, whether in the derivatives markets or in the underlying cash markets,” he said.
Both Quintenz and Giancarlo agree that self-regulation could spur the development of standards around security policies, data retention, consumer protection, and other trading practices when it comes to cryptocurrency trading in the United States. This seems like a fantastic opportunity to model what is being done in the United Kingdom with CryptoUK.
What’s the takeaway?
As bureaucrats and regulatory leaders slowly begin to come around, a ripe opportunity is presenting itself for the U.S. cryptocurrency industry. The time to seize upon this opportunity is now – especially as self-regulatory bodies are beginning to develop around the world in an effort to further legitimize and normalize cryptocurrency trading for everyone.
This will not only stymie the heat from bureaucratic regulators like the SEC but create a stronger, safer, more attractive industry to potential investors.